Foreclosure, Deed in Lieu of Foreclosure & Bankruptcy

by DeLadurantey Law Office, LLC on July 2, 2014

If you have fallen behind on your mortgage payments, you are likely considering all of your debt relief options. While foreclosure is something everyone wants to avoid, it is important to fully understand the pros and cons associated with your other options as well.

Some lenders will offer their borrowers who are facing foreclosure the option of a deed in lieu of foreclosure. As the name suggests, it is a means for avoiding foreclosure and surrendering your home back to the mortgage-holder. While this can be beneficial, a deed in lieu also has serious consequences.

The foreclosure process is time-consuming and expensive for your mortgage lender. Thus, in order to avoid the legal hassle, your lender requests that you sign over the deed to your home. This allows the lender to legally take possession of the property without going through the foreclosure procedure. As a homeowner, it allows you to deal with the transaction quickly and less-publicly. You may also be able to negotiate for the lender to pay you a small sum in exchange for the deed in lieu. If you are extremely lucky, you may be able to negotiate the deed in lieu in exchange for an agreement by the lender not to pursue any deficiency balance left owing on your mortgage after the property has been auctioned.

The downside? When you take advantage of the deed in lieu process, it is considered “debt forgiveness” by the Internal Revenue Service (IRS). Thus, the amount forgiven is considered by the IRS as income and you will be taxed on it. This can be a very unpleasant surprise for homeowners who are not expecting it.

If you are facing foreclosure, considering a deed in lieu, or facing 1099 taxes that you can’t afford, you may want to consider filing for bankruptcy protection. A Chapter 7 or Chapter 13 filing could allow you to discharge the deficiency balance owed after the sale of your home and help you deal with your taxes.

Contact The “Milwaukee Bankruptcy Attorneys,” DeLadurantey Law Office, LLC for all your Chapter 7 and Chapter 13 bankruptcy needs. Whether you need debt negotiations or debt relief, or even foreclosure defense, DeLadurantey Law Office will handles bankruptcy matters for the following location – Milwaukee, South Milwaukee, West Milwaukee, Waukesha City, Waukesha Town, Kenosha, Racine, and all other municipalities in Milwaukee County, Waukesha County, Kenosha County, and Racine County. DeLadurantey Law Office, LLC can be contacted by phone at (414) 377-0518.